The platform business model: the new way for telcos to compete

The pipe business model is broken. How can the telco industry re-appraise its strategy?

We are in a marketplace where we sell outcomes, not products

Up until 2007 mobile handset manufacturers were profitable and Nokia, Samsung, Motorola, Sony Ericsson and LG controlled 90% of the industry’s global profits. By 2015 Apple had commoditised that market with the iPhone (note 1).

This was prime example of the power of the platform business model, and since then, it appears that any successful company in the digital economy, especially unicorns (private companies with over USD 1 billion valuation), have created a platform rather than sold a product. 40% of the world’s top 30 brands are now platform businesses.

The age of platforms, data and ecosystem management

We are at a tipping point where the platform economy will affect every company in every sector. All companies will need a platform strategy, even just to assess which ecosystem partners to work with, to grow and protect their business.

The telco sector knows that it needs to restructure and refocus its business to be successful. Their networks offer a key enabling role in the digital economy, where their assets and data can support emerging sectors such as smart cities, smart homes and connected cars.

An open platform will create new opportunities for telcos to compete in the digital economy.

The IoT and the telco opportunity

Our analysis shows that the market for IoT-enabled services could reach over USD 8 trillion in 10 years’ time, up from USD 0.7 trillion today. It offers significant opportunities for telcos to play an active part in a diverse ecosystem of technology suppliers, vertical domain experts and channel partners, beyond just connectivity.

This is a highly complex task, considering the full scope and span of IoT opportunities and the many different players involved. The main challenges, as voiced at the event, are service orchestration and monetisation.

Deriving value through a platform business model

The influence and success of digital platforms cannot be ignored. They are the new model of economic activity. By aggregating consumers and producers through an ecosystem, companies can expect to see performance improvement, leveraged growth, distributed innovation, and, in some cases, restructuring of markets.

Technology has made it easier and cheaper to share assets than ever before. Apple iTunes is one such example of this in the consumer market. BT with its new cloud of clouds vision is an example in a B2B context. Samsung suffered because it lacked the control points of a strong platform model. On the most part, the same can be said of telcos.

How does the platform work?

The real strategic value of a digital platform is to harness the service offerings from a diverse supplier base, and then to use shared orchestration, monetisation and administration tools to offer new service bundles.

Over time, the telco’s platform should grow to host many tenants paying to use their infrastructure – fostering a marketplace for innovative service bundles and channels to new market segments. By adopting this strategy, this supports the move from being providers of telecoms and ICT services, to creators of digital innovation platforms that drive local economic growth.

The role of application programming interfaces (APIs)

APIs are a key ingredient to a successful platform. They enable flexible partnerships for new services, the platform must provide an open and non-proprietary interface. TM Forum announced at the event that nine of the world's largest service providers -- Axiata, Bharti Airtel, BT, China Mobile, China Unicom, NTT-Group, Orange, Telefónica and Vodafone -- officially adopted TM Forum's suite of Open APIs for digital service management. BearingPoint’s Infonova R6 also conforms to these standards.

Overcoming the monetisation challenge

How do you ensure everyone involved in service delivery gets paid the right amount, on time? A platform based business model enables telcos to not only engage with complex service management, but most importantly, to effectively monetise their business. Undoubtedly, a great deal of money can be made from every aspect of a platform, but it's also important to recognise the value of customer data that can be captured and managed in the platform. In the long run, this can prove even more valuable than the immediate monetary gain.

Closing thoughts

For the traditional telco, embracing a platform business model provides a new way to grow, increasing relevance and value in the fast expanding digital economy.

Here are some key points to think about:

Make data asset management a top priority – Data is the key asset for the future, the ‘oil of the digital economy’. Much greater effort must be made to manage it across silos so it can be exploited effectively. This forms part of a much more expansive API strategy.

Harness the synergies of all stakeholders – platforms should be designed to leverage the expertise, participation and data of all users – customers, suppliers, partners, developers – to create innovative new solutions for markets.

Think about long term value creation – Major players in the telco world are recognising that there is money to be made through the platform economy. But rather than focus on short term revenue gains, remember that platforms take time to create exciting network effects. The platform needs curation and careful nurturing.